aim: what is the nature of supply? do now: imagine you own a pizzeria and the price you are able to...
TRANSCRIPT
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Aim: What is the nature of supply?
Do Now: Imagine you own a pizzeria and the price you are able to sell your slices for has just gone up. You can now
earn $2 a slice! How will you adjust your quantity supplied in order to create a great profit?
HW: Chapter five Section 3, Read 116-120. Copy and answer questions 1-3 pg 120.
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Supply and Quantity Supplied• Supply the amount of a good or service that
producers are willing and able to offer for sale at all possible prices during a period of time, all else constant. (THE ENTIRE CURVE)
• The quantity supplied is the amount sellers are willing and able to offer for sale during a period of time at a specific price, all else constant.
A change in the Quantity supplied is a movement along the supply curve.
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LAW OF SUPPLYThe quantity of a well-defined good or service that
producers are willing and able to offer for sale during a particular period of time increases as the price of the good or service increases and decreases as the price decreases, everything else held constant. (Direct relationship)
• As Price Rises…
…Quantity Supplied Rises
• As Price Falls…
…Quantity Supplied Falls
Why do you think that is?
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Representations of Supply• Supply Schedule: A table or list of the prices
and corresponding quantities supplied of a particular good or service. It is the price-quantity relationship presented in tabular form.
• Supply Curve: A graph of the supply schedule with price on the vertical axis and quantity demanded on the horizontal axis.
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Supply Schedule and Supply Curve for DVDs
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Market Supply Curve• Individual supply Curve:
represents the price-quantity combinations for a single seller-like the one we just saw for CDs
• Market Supply Curve: represents the price-quantity combinations for all sellers of a particular good. (for the whole market)
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Deriving a Market Supply Schedule and a Market Supply Curve
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Create your own supply schedule and graph!
• Imagine you are a supplier of an item (you choose) First create a table with price in the left column, and quantity supplied in the right column.
• Then create a graph.
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5
P
Qo
$5
4
3
2
1
10 20 30 40 50 60 70 80
$54321
60503520 5
P QS
Price of Corn
Quantity of Corn
CORN
Plot the PointsGRAPHING SUPPLY
I am a supplier of Corn!
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P
Qo
$5
4
3
2
1
10 20 30 40 50 60 70 80
$54321
60503520 5
P QS
Price of Corn
Quantity of Corn
CORN
Plot the PointsGRAPHING SUPPLY
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35
P
Qo
$5
4
3
2
1
10 20 30 40 50 60 70 80
$54321
60503520 5
P QS
Price of Corn
Quantity of Corn
CORN
Plot the PointsGRAPHING SUPPLY
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P
Qo
$5
4
3
2
1
10 20 30 40 50 60 70 80
$54321
60503520 5
P QS
Price of Corn
Quantity of Corn
CORN
Plot the PointsGRAPHING SUPPLY
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Discussion:
• What does a supply curve look like?
• Why? What is the relationship between price and quantity supplied?
• How is this different than the relationship between price and quantity demanded?
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Let’s Compare the two curves!
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Aim: What are the factors that influence a change in supply?
• HW Chapter 6-1; Read 125-131. Copy and answer 1-2 pg 131. Test Wed Read 134-136.
• Do Now: You are a pizzeria owner (again)…You sell your pizza for $2 a slice, and you like to produce fifty slices a day.
• What are some factors that might decrease your supply curve? Increase in the price of ingredients. So when you increase the cost of production- costs more to produce, that will decrease the supply curve….
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Changes in Supply
• Change in Quantity Supplied - movement along the same supply curve in response to a price change.
• Change in Supply - shift in entire supply curve.
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SP
Qo
$5
4
3
2
1
10 20 30 40 50 60 70 80
$54321
60503520 5
P QS
Price of Corn
Quantity of Corn
CORN
What if
Supply
Increases?
GRAPHING SUPPLY
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SP
Qo
$5
4
3
2
1
10 20 30 40 50 60 70 80
Price of Corn
Quantity of Corn
$54321
60503520 5
P QS
CORN
8070604530
S’Increase
in
Supply
Increase
in Quantity
Supplied
GRAPHING SUPPLY
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SP
Qo
$5
4
3
2
1
10 20 30 40 50 60 70 80
$54321
60503520 5
P QS
Price of Corn
Quantity of Corn
CORN
What if
Supply
Decreases?
GRAPHING SUPPLY
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SP
Qo
$5
4
3
2
1
10 20 30 40 50 60 70 80
$54321
60503520 5
P QS
Price of Corn
Quantity of Corn
CORN
S’
453020 0 --
Decrease
in
Supply
Decrease
in Quantity
Supplied
GRAPHING SUPPLY
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Supply Curves When There is No Time to Produce More or No More Can Be Produced
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Factors Which Can Shift the Supply Curve
Prices of RelatedGoods and Services
Number Of
Producers
ExpectationsOf
Producers
TechnologyAnd
Productivity
ResourcePrices
Supply
Taxes and Subsidies
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DETERMINANTS OF SUPPLY
• Resource Prices - –a rise in resource prices will
cause a decrease in supply or leftward shift in supply
–A decrease in resource prices will cause an increase in supply or rightward shift in the supply curve
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DETERMINANTS OF SUPPLY
Technology - a technological improvement (techniques of production) enable firms to produce units of output with fewer resources. (i.e computers)- will adjust supply curve to the right.
Taxes & Subsidies - A business tax is treated as a cost, so decreases supply curve. Taxes on an item will adjust the supply curve to the left.
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Government Subsidies
• Sometimes the government SUBSIDIZES a business or market. The producer gets paid to produce.
• What are some reasons why the government may have to subsidize? During wartimes if there is a shortage, we subsidize alternate energy to help the pollution problem….
• How do subsidies affect the supply curve- shift to the right-more supply
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SUBSIDIES CONTINUED
• SUBSIDIES LEAD TO AN INCREASE IN THE SUPPLY CURVE BECAUSE THEY DECREASE THE COST OF THE PRODUCTION
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GOVERNMENT REGULATION
• Government regulation often increases the cost of production, thereby decreasing supply.
• Examples of government regulation:– Environmental requirements
Can we think of other forms of regulation that would increase production costs? Minimum wage
Supply curve will move to the left.
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DETERMINANTS OF SUPPLY
Price Expectations - expectations about the future price of a product can influence producers to increase or decrease current supply.
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Future Expectation
• Say you expect that the price of pizza is going to rise next week.
• You would move supply to the left currently (then to the right later)
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Global Economy
• Because we import goods, often additional costs are added. AN increase in the wages of a Chinese worker would increase production costs of that item thereby decreasing the supply to the American market. The curve moves to the left.
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DETERMINANTS OF SUPPLY
Number of Sellers – the larger the number of suppliers, the greater the market supply
Prices of Related Goods - if the price of substitute production good rises, producers might shift production toward the higher-priced good, causing a decrease in supply of the original good.
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Final DIscussion
• What are the factors that alter the supply curve?
• Say the cost of cheese went up and you are the pizza maker.
• Draw your original supply curve S1, the draw what your second supply curve S2 would be.
• Which direction did your curve move?
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DETERMINANTS OF SUPPLY
• Resource Prices
• Technology
• Taxes & Subsidies
• Prices of Other Goods
• Price Expectations
• Number of Sellers
Combining
with
Demand
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Aim: How do supply and demand create a balance in the market?
• HW chapter 6 sec 2- Read 133-137. Complete #3 pg 137
• Do Now: What happens when the quantity supplied equals the quantity demanded?
• What is that called?
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Equilibrium• Equilibrium is the price and quantity at which
the quantity supplied and the quantity demanded are equal.
• A market is said to be in disequilibrium at all points at which the quantities demanded and supplied are not equal.– A surplus occurs whenever Supply>Demand.– A shortage occurs whenever Demand>Supply.– Surpluses and shortages can be resolved with price
changes which lead to adjustments in .
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Let’s Compare the two curves!
When Supply is greater than demand=Surplus
When demand is greater than supply=shortage
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7
SP
Qo
$5
4
3
2
1
2 4 6 8 10 12 14 16
P QD
$54321
2,0004,0007,000
11,00016,000
$54321
12,00010,000
7,0004,0001,000
D
P QS
Price of Corn
Quantity of Corn
CORN
MARKET
CORN
MARKET
Market Clearing Equilibrium
MARKET DEMAND & SUPPLY at EQUILIBRIUM
Supply and Demand
Intersect
Market Price
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7
SP
Qo
$5
4
3
2
1
2 4 6 8 10 12 14 16
P QD
$54321
2,0004,0007,000
11,00016,000
$54321
12,00010,000
7,0004,0001,000
D
P QS
Price of Corn
Quantity of Corn
CORN
MARKET
CORN
MARKETSurplusAt a $4 price
more is being
supplied than
demanded
MARKET DEMAND & SUPPLY Disequilibrium
At which price will there be an equilibrium?
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117
SP
Qo
$5
4
3
2
1
2 4 6 8 10 12 14 16
P QD
$54321
2,0004,0007,000
11,00016,000
$54321
12,00010,000
7,0004,0001,000
D
P QS
Price of Corn
Quantity of Corn
CORN
MARKET
CORN
MARKET
At a $2 price
more is being
demanded than
supplied
Shortage
MARKET DEMAND & SUPPLY
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117
SP
Qo
$5
4
3
2
1
2 4 6 8 10 12 14 16
P QD
$54321
2,0004,0007,000
11,00016,000
$54321
12,00010,000
7,0004,0001,000
D
P QS
Price of Corn
Quantity of Corn
CORN
MARKET
CORN
MARKET
Shortage
MARKET DEMAND & SUPPLY Surplus
By Changing price we move to equilibrium!
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Equilibrium (Table)-Fill in the Status as Surplus or Equilibrium
Price
Per DVD
Quantity Demanded
Quantity Supplied
Status-Surplus/Equilibrium
Price Change
$5 30 102 Price Falls
$4 48 84 Price Falls
$3 66 66 No Change
$2 84 48 Price Rises
$1 102 30 Price Rises
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The Answers
Price
Per DVD
Quantity Demanded
Quantity Supplied
Status-Surplus/Equilibrium
Price Change
$5 30 102 Surplus Price Falls
$4 48 84 Surplus Price Falls
$3 66 66 EQUILIBRIUM No Change
$2 84 48 Shortage Price Rises
$1 102 30 Shortage Price Rises
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Shifts in Supply
• Since Market Equilibrium occurs at the intersection of the demand and supply curve-a shift of the entire supply curve will change the equilibrium price.
• A change in supply (either to the left or right) will set the market in motion to form a new equilibrium-a new price and quantity sold.
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Price Floors and Ceilings• Price Floor: price is not allowed to
decrease below a certain level.Examples: minimum wage, agricultural price supports.
• Price Ceiling: price is not allowed to increase above a certain level. Example: rent controls.
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Example of how a supply shift shifts price. Pgs 134-135
• An Increase in technology has decreased the cost of production for CD players overtime. Producers can produce more CD players-increasing the supply curve. Say they went from offering 2 million cd players to 4 million cd players- But the demand is still at 2 million.
• The suppliers now have to lower their prices to reach a new equilibrium-this will increase the demand (a decrease in price increases demand) to meet the supply= new equilibrium.
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0
200
400
600
800
1000
1200
1 2 3 4 5
Output in Millions
Pri
ce
Supply 1
supply 2
demand
$
S1
S2
D
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Impact of Increase Demand
• If the demand curve shifts to the right causing an increase in demand (shortage), prices will rise to meet a new equilibrium. Suppliers will raise prices-and an increase in prices will increase the supply- Meeting at a new equilibrium!
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0
10
20
30
40
50
60
100 200 300 400 500 600 700
Quantity in thousands
Pri
ce
Demand 1
Demand 2
supply
D1
d2S
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1) An excess in supply is called a_______
2) When supply does not meet demand it is called a _______
3) If Supply curve increases, suppliers will have to ______ their prices which leads to a ______ in quantity demanded.
4) If Demand increaes, the prices will_______ and eventually quantity supplied will ________ to meet a new equilibrium
Final Discussion
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Rent Controls
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A Price Floor